Cydney S. Posner is special counsel at Cooley LLP. This post is based on a Cooley memorandum by Ms. Posner.

You might recall that, earlier this month, the SEC voted to propose amendments to add new disclosure and engagement requirements for proxy advisory firms and to “modernize” the shareholder proposal rules by increasing the eligibility and resubmission thresholds. (See this PubCo post and this PubCo post.) At the SEC open meeting, in explaining his perspective on the proposals, SEC Chair Jay Clayton indicated that, following the SEC’s proxy process roundtable (see this PubCo post), the SEC had received hundreds of comment letters, but there were seven letters that were most striking to him. Clayton seemed to be genuinely moved by these letters, ostensibly submitted by various Main Street investors, a group that Clayton considers to be core to the SEC’s protective mission. (See this PubCo post.) But, according to Bloomberg, there’s something not quite right—something “fishy”—about those letters. To borrow a phrase, did Clayton get punked?

The seven letters cited by Clayton “came from long-term Main Street investors, including an Army veteran and a Marine veteran, a police officer, a retired teacher, a public servant, a single Mom, a couple of retirees who saved for retirement, all of whom expressed concerns about the current proxy process. A common theme in their letters was the concern that their financial investments—including their retirement funds—were being steered by third parties to promote individual agendas, rather than to further their primary goals of being able to have enough money to lessen the fear of ‘running out’ in retirement or to leave money to their children and grandchildren.”

Bloomberg examined the seven letters to which Clayton alluded, plus others, and found that “they are the product of a misleading—and laughably clumsy—public relations campaign by corporate interests.” According to Bloomberg, although the retired teacher’s signature was her own, she said that she did not write a letter. The Army and Marine vets were the brother and cousin of the chair of an “advocacy group paid by corporate supporters of the SEC initiative.” The retiree claims never to have written a letter, but is a relative of the person who runs the same advocacy group. The same group also wrote the letter purporting to be from the “single mom.” The letters from the sheriff and other retiree were apparently provided by another corporate public affairs firm. And the letter from the “public servant” also originated from a public affairs firm; although she did give her consent, she reportedly had no idea what a proxy adviser was. Moreover, four of the seven letters mentioned by Clayton contained the same unusual error—addressing the letter to the SEC Secretary at “a coalition of growth companies” above the SEC’s mailing address. According to Bloomberg, the same error—an “inadvertent digital fingerprint”—was present in at least 20 of the comment letters submitted, many of which also came from individuals formerly or loosely associated with the advocacy group above. Of course, it’s very common for the SEC to get thousands of form comment letters on both sides of issues; the SEC reported receipt of over 18,000 identical form letters opposed to rule changes. What’s interesting here is that—in addition to having been called out and footnoted by Clayton—these letters are all different and some quite plaintive.

The SEC apparently declined to comment on these irregularities but, in an interview on Bloomberg, Clayton emphasized that both sides will have plenty of opportunity to weigh in on the proposals. A spokesman for the advocacy group acknowledged recruiting these “commenters,” but indicated that no names were used without permission. He was otherwise quite “proud” that four of the letters prepared by his group were cited by Clayton.

SEC Punked? 2019-12-08T07:19:42-05:00 2019-12-08T07:19:42-05:00Harvard Law School Forum on Corporate Governance and Financial Regulation